Immigration, Housing Costs and Retirement: What the Fed Study Really Says

The Federal Reserve just released data linking immigration to housing market trends. Learn how rising house prices impact your retirement.

This episode of The Capitalist Investor examines recent research from the Federal Reserve regarding the connection between unauthorized immigration and housing market trends. We bypass the political noise to focus strictly on the economic data provided by the central bank. If you are concerned about how shifting demographics might alter your long-term financial stability, this analysis provides a clear look at the current landscape.

Our goal is to help you understand how rising house prices and increasing rent prices might influence your personal retirement planning. By reviewing this specific study, we highlight why housing costs are a critical variable in your financial strategy. We break down the implications for investors and homeowners alike, ensuring you have the data needed to adjust your portfolio expectations.

Subscribe for weekly investment breakdowns, and let us know in the comments how you are adjusting your portfolio for the current economic climate.

Transcript

SPEAKER_02 0:00

On this week's episode of The Capitalist Investor, the Federal Reserve dropped a bomb this week. They linked a study on how unauthorized immigration has created and is correlated to higher housing and rent prices. Today we are gonna push politics aside, read the research, and we're gonna talk about how rising house prices and rents will affect and mold your retirement. Alright, Tony. How's it going, man? Welcome back. What happened to our nicknames, man? Diamond Hands D, Tony the Tiger.

SPEAKER_01 0:38

Um, I have been doing them actually recently. You have? Yeah. Why? Because you brought Dave out. I think so, yeah. Well, it's what's him? What's his name? He doesn't have a nickname. I just brought my nickname out. Diamond Hands D and Dave. Yeah. All right. Exactly. All right, Diamond Hands D and Tony. Yeah, we're going through some old episodes. We used to have uh sound effects and everything, man.

SPEAKER_02 1:00

You know, I don't know. Maybe maybe we'll throw sound effects in.

SPEAKER_01 1:05

Maybe.

SPEAKER_02 1:05

You never know. Cue the sound effects. Alright, anyway. So, D, we're talking about um there was a the uh you know a post by the the Federal Reserve talking about how there has been a 20 to 30 percent or 20 or 30 percent uh home growth and twenty percent uh rent growth uh throughout our nation. And they're linking it directly to immigration, the the you know, the uh unauthorized immigration uh in the Biden era, you know, that 2021 to 2024. And we want to push that headline aside and really look at what this study was, what it means, what are the facts, what are not the facts, because you know, precursor, there isn't a ton of facts. So we're gonna we're gonna talk about like all the underlying items that are attributing to this because they are right, you know, like there is a a huge spike in in uh the prices of houses and also rents to the point where you know wage growth really hasn't kept up with those increases, and it's very difficult for you know new home buyers and you know just people to rent.

SPEAKER_01 2:29

Yep, for sure. Yeah, this uh this headline caught my uh eye over the weekend um because it is nice to put some facts and figures rather than just you know shouting at each other. So while this is a uh politically charged topic, um, you know, we want to look at the what the research actually says and you know what it means for pre-retirees and and retirees, and you know, I think also for the economy at whole, you know, this has been obviously a major issue for a long time now. So kind of understanding it, I think, just helps uh you understand the overall environment that that we're in right now.

SPEAKER_02 3:07

So, you know, as we kind of did our our homework and rolled up our sleeves and started like check fact, you know, doing some fact checks and things like that. Yep. Um, it's very interesting. Uh, you know, like so this was a uh a working paper, is what they call it. So no one's really standing behind all the real numbers. They're just saying, hey, you know, this is the reports that we're seeing. So one of one of the headline numbers, you know, according to the Washington Times, is that um, you know, local labor force uh correspondence was about two and a half percent rise in home prices and one point four percent in rent. I don't believe that whatsoever. Like you're telling me that stuff's not going up higher than uh inflation.

SPEAKER_01 3:49

I mean Well, I think what um so I think it said with every one percent increase in the unauthorized workforce, that correlated to a two percent, two point two percent rise in home prices and one point four percent increase in rent. Okay. So every one percent you add to the the the the working force, exactly. All right, it it it increased it by those um by those numbers on average. And and we'll we'll we'll talk about exactly what the study says in this section here, actually. Right.

SPEAKER_02 4:23

And because the economist came out and said uh, you know, estimate you know, unauthorized immigration worker flows accounted for 30% of employment growth. That's interesting. Yep, for sure. Um and then roughly are you allowed to hire an unauthorized uh person? I that's where I'm like just stuck. Not really. And I don't think you're supposed to do that. No, so but uh and you know, but that that growth, you know, because that I guess that does correlate with what we what you just mentioned is that 30% uh home growth and 20% rent growth, you know, between March of 21 and March of 24.

SPEAKER_01 5:04

Yep. So you know, I think I think this fact was interesting as well. Um basically the uh the the surge in labor didn't really significantly impact the wages, uh, which is interesting. So you would think, you know, if there's a bunch of extra workers that that would drive the wage price down. You would think. Yep. And and that that doesn't seem to have happened as as bad as the increase in the uh uh housing costs, essentially. Right. Because that that is more of a static number that that you have uh as far as you know available homes, available rents. So the the scarcity there drove up the costs uh much quicker than then the wages went down.

SPEAKER_02 5:52

Yeah. Uh and I I mean I'm gonna make an assumption that at least 80 to 90 percent, if you know, we were having unauthorized workers working here, um they're you know, uh on you know, in that uh well minimum wage type of category, at least eighty, I I would make an assumption. I don't I didn't look that number up, but um, I don't know if we can you know how much we can latch to some of these numbers, but think about other impacts. So like they they just mentioned unauthorized you know um immigration. Well, what about you know we we had we had other, I guess I I would say other reasons to these increases. So first elevated mortgage rates. So that's making people not want to move, which is g you know, messing with supply. Um and there's no supply and yet people still need to move or buy a new home and things like that. Um now there were there was a lot of restrictive zoning laws and new construction um you know, I I guess bandwidth. So some of the other factors that go into this isn't just immigrant immigration, right? Right? It it comes down to mortgage rates. We talked about how rising interest rates are causing people not to want to move. Who wants to give up a 3% mortgage for a seven? Your your your mortgage payments are nearly gonna double if that happens. Um restrictive zoning laws and and construction in laws, and and you know, President Trump just lifted those not that long ago. Uh so you know they're a little bit behind the curve, but he had to pass a, you know, he had to undo some of the restrictive uh covenants against going out and building new homes. So making it easier for the construction companies to put a shovel in the ground.

SPEAKER_01 7:47

Right, for sure.

SPEAKER_02 7:48

And then uh institutional uh purchases, you know, they were talking a lot about how like BlackRock and going out and buying these houses and not really concerned about what they're paying for them because they want the cash flow. Right. But that, you know, they're they're now dictating the the cost of a single family home rental, and that can also drive up the the the rates as well, and then uh material costs, obviously just just wood and and steel and and items like that. So there's a lot of there's a lot there. Yep. So it can't just be tied to one thing.

SPEAKER_01 8:23

Yeah, which is one of my key takeaways, honestly. I think um, yeah, I think this going through this exercise kind of added in a lot of data points that you know are not discussed, obviously, when you see the headline, uh, you know, which is essentially, you know, illegal immigration is causing a 30% spike in in home right in uh home prices. Um that that's not necessarily the whole story here. So lot lots of factors going into it.

SPEAKER_02 8:50

Um and well and then think about like location too. Yeah, for sure. Yeah, like there's a huge uh you know, cost of living adjustment between New York and Ohio or even Miami, or you know, like so think about like where where some of those prices are impacting the national average. Yeah, for sure. But here's the here's the one thing. So if you know the number that they keep on saying is that there is what 10 million, you know, illegal, you know, people that came across in that three-year period.

SPEAKER_01 9:20

Right.

SPEAKER_02 9:21

I I looked and it in the there are three and a half million to four million new births in the United States. Okay. If ten ten million came over in that three year span, that's three and a half roughly three and a half million people per year. And then we tack on what our normal birth rate is. And but the people coming over are looking for houses right now. The the three and a half million of new births, just think that that's been happening for the last uh 25 years. And a 25 to 30 year old person, so you do now have rather than three and a half million people, you have seven people seven million people looking for a new house. Right. So I can see the in the construction costs and you know the you know, just the the the manual labor needed to build twice as many houses as normal in in in a snap of a finger. It happened instantaneously. So I could see that being the actual driving factor of there are a lot more people in the in the in the system looking for a house immediately because you don't have a bunch of children coming over, right? It's adults maybe with children, but those adults are need somewhere to live.

SPEAKER_01 10:37

Yep, for sure.

SPEAKER_02 10:38

Does that make sense?

SPEAKER_01 10:39

Well, yeah, especially when it happens all at once. That that just compounds the the problem with with everyone looking for for the housing all all at one time, um, and causing a significant um you know demand crisis. Right. Um, which is you know kind of highlights uh some of some of the problems that that we've been seeing for a while, you know, um, and I I think the this paper alludes to it uh as well. The the supply problem of housing um is is the root cause cause of most of these issues. Um and I I think most uh economists agree on that. That that's kind of the one of the main issues is is the supply problem.

SPEAKER_02 11:22

Yeah. So all right, so let's talk about how this uh might be affecting a pre-retiree retiree. Yep. Right. So you're either renting, you're owning, or you're moving sideways, maybe you're downsizing, right? There's I guess three different scenarios that we can think of. Well, if you own your house, your equity is going up. Right. I uh uh you know, when we build a financial plan, we'd never have you liquidating your house. So that never that does not all it does is increase your net worth, but it doesn't really help your retirement unless you leverage it for line of credit or reverse mortgage or or something along them lines, right? So if you own, it's not really affecting you, right? Unless you're gonna move, right? And you're gonna downsize. And this is where I don't I think that's a moot point. So you sell your current house high, you buy your next house high. Oh, yeah, right. But and let's say that there's a correction and and house, you know, housing costs or the cost of a house does come down, right? Like it comes off the peak and it doesn't just keep on skyrocketing. And people are like, oh my god, I bought my new house and I lost so much money. Well, you would have lost your money in the house that you just sold. Exactly. So I look at that as a moot point too, unless you unless you downsize, but it costs you more than your current house. Like you had to go mortgage a hundred or two hundred grand, which is what is what's happening right now.

SPEAKER_01 12:50

It's possible, right?

SPEAKER_02 12:51

You know, and and most people even they are downsizing, they're still having a hard time you know, getting into a house from the the equity that they sold their current house at. So then we have rents. Well, that that's a that's a big headwin. If you're renting and you're heading into retirement or retired, right? That is a big that's a big headwind and an unknown, primarily.

SPEAKER_01 13:17

So yeah, that's um, you know, when when we're building out a plan for our clients and and we're putting in, you know, an an inflation factor in there, um, you know, people are retiring ear earlier, uh living longer, so we have a longer period of retirement we have to plan for. Um so yeah, if if you're one of your main expenses is rent and it's going up faster than the rate of inflation that that we have in the plan, which is usually around three percent, um, that's going to put pressure on your budget. There's no doubt about it. Yeah.

SPEAKER_02 13:51

I mean, in our plans, we used to um increase the the the you know the inflation rate on healthcare. We may need to do that on on if if if we're building a plan for a renter, we need we might need to spike that to five o'clock or five percent rather than three percent. Yep, for sure. Now, here so I talked about the I called it a moot point between uh an owner, you know, owning a house, what do you do with it if you're plan not planning on moving and then or if you are planning on mooning or moving, like there is no there it's a moot point, in my opinion. I mean it could be you know, unless you upgrade, you know, and stuff like that. But what about the renter? So what like that's the person that we will you know we really have to be diligent on. So some of the some of the solutions for that person is obviously planning for it. That's the key number one, uh, but also trying to find investments that are going to help pay for that increase. Right. So what do you what do you do? Do you do you make it it could make a case for annuities that have inflation hedges? Um your social security, do you delay that because you're gonna get more income? Um, you know, and plus they've increased with inflation, right? So these are you know some of the things that are more predictable and that are real hedges against increase in rents that you can't control, right? You you might have to, you know, put it in your own hands to to figure out what to do with that. And there's a couple different investment options and choices and when to turn certain spigots on in your retirement.

SPEAKER_01 15:32

Yep. So and this is um I this is one of my main um I guess arguments for you know things I believe in. Um you know, renters have no uh um, you know, inflation hedge, usually, right? So if it like you said, if you move during this period, it's kind of a moot point um or a moo point, you know, a cow's opinion just doesn't matter. Um that's an old school reference there. I like that. I like that. Um but that that's exactly the problem, and that that's what is is causing people to get behind, and that is the thing that I want people not to have to go through. Um if you own a house during this environment, you're just in a way better position than the people that have to rent.

SPEAKER_02 16:20

Correct.

SPEAKER_01 16:21

And the people who have to rent are putting more and more and more uh of their percentage of their income towards that rent. You know, you see, you know, stories of um, you know, people getting their rent uh increased by big numbers, doing it at the last minute. You see all kinds of bad practices out there. You know, that that's what um anything that goes against kind of the American dream um is something I am against. And you know, just having to, you know, fork over more and more money for for the same rent, that that that hurts um people in that segment. And and it what it does is it it kind of drives a wedge further between the haves and the have nots, you know, and that's um one of my main points of everything I believe in is I don't want that. I want everyone to have that that uh ability to access the the American dream like that.

SPEAKER_02 17:11

Yeah, the American dream was to own a home. Yep, exactly. So um the other the only other thing we can think of, so whether you're a renter or an owner, you're like, okay, we we understand that you know housing as a a uh uh a better case to continue to go up than to go down. So what how do I invest in that though? Rather, you know, it could be REITs, yeah, right? A real estate investment trust. Now that if you believe that rents and houses are gonna continue to, you know, you know, creep forward and and continue to rise, and I can talk to a thousand people that have rented in real estate and they say that's their best investment ever. Right. Like, you know. Um but uh have we have we pulled a lot of returns forward you know be in the last several years? Yeah that's that's something to think about. Um so if you if you want to invest in a REIT, that would make the sense if you can if you believe it's gonna go up. I could look at it and say it could be a very risky proposition for a REIT just because you could be buying high. Yep, for sure. You know, they they they you know if interest rates come down and construction catches up and regulations are stripped away so they can build houses faster. Um that is where we're gonna have this supply and demand shift and prices could actually come down.

SPEAKER_01 18:32

Yep, for sure.

SPEAKER_02 18:32

And then if you buy a REIT and they're not getting the income that they projected, then that REIT goes down. So it it's definitely a solution, but you have to be careful and size it appropriately. And also believe that, you know, don't, you know, don't just do it because someone said it was a good idea. What do you feel what do you think is gonna happen, you know, so that you can feel confident in investing in something like that. Yeah, but as we wrap this up, Derek, um, I believe that this Fed, you know, study, I think it's real, and but there's too many, there's way more layers to it than just immigration, right? It's part of the puzzle, it's a politically charged headline, um, because there's just too many factors that go into it.

SPEAKER_01 19:14

Yep, for sure. And uh another um kind of uh takeaway, um, like we just talked about talked about, um, the the the disparity between renters and owners of homes um, you know, is exasperated um you know during these periods of inflation.

SPEAKER_02 19:32

Yep. So I guess the the call to action for this is you know, take a look at your housing cost as a percentage of your projected retirement income. You know, and if you're above 30%, you know, whether you're renting or carrying a mortgage, that that number needs attention, you know, and we have to start gearing around it, looking at it, and seeing how can we get that that number down because it it it does have a better probability of going up than going down.

SPEAKER_01 20:03

Yeah, for sure. So and make sure you're planning for um inflation in your financial plan, um, especially in the next uh five-year period. I I don't think it's gonna cool down uh that quickly.

SPEAKER_02 20:15

Right. And you know, again, looking, you know, uh finding somebody that's gonna help, you know, financial advisor that's gonna really help find an income plan around this is a big deal. Because I'm like, okay, my house is paid off, and but what if you want to move? Like there in and your mortgage is you know, we painted that scenario where your mortgage is gonna be higher, you or you might have to bring on an additional mortgage because even though you're downsizing things, the house might be nicer, more amenities, different location, right? Go if you're here in Ohio with us, like moving anywhere is gonna be more expensive. Yeah, for sure. So again, the income planning part uh through retirement, whether it's housing or anything else, right? And just retirement goals in general is such an important part. Yep, no doubt.

SPEAKER_01 21:03

All right. Well, um, that was a good uh good conversation. Um, it's nice to talk about uh some of the the things uh currently going on. Um so you know, we'll continue to watch that situation. Uh, but thanks everyone out there for listening. If you have any questions, ideas for a show, anything like that, hit us up at info at swpconnect.com and we'll talk to you next week.

SPEAKER_00 21:29

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